Oil Falls to $90 on Recession Fears

Oil fell toward $90, adding to losses of more than $3 in the past two days, on fears the U.S. economy will slip into a recession and hurt demand from the world's largest energy consumer.

Oil Barrels

U.S. light, sweet crude for February delivery fell. London Brent crude followed the move.

Federal Reserve Chairman Ben Bernanke said that more interest rate cuts may be necessary and that the U.S. economic outlook has worsened.

Separately, a survey showed factory activity in the U.S. mid-Atlantic region contracted dramatically in January, reinforcing fears of a recession.

"The market may rally a bit but, with recession in the U.S. becoming the major driver, it looks like the sentiment is to sell rallies rather than buy dips," said Nauman Barakat, senior vice president at Macquarie Futures USA in New York.

The market had risen more than a dollar earlier in the session on concerns of escalating Middle East tensions after Israel carried out a missile test.

The test raised speculation the launch was part of a programme to develop longer-range weapons or improve an anti-missile defence system.

Israel Radio said the missile tested was capable of carrying an "unconventional payload."

Israel believes Iran could have a nuclear bomb by 2010 and says an Iranian nuclear weapon would threaten the existence of the Jewish state. Oil-rich Irandenies seeking nuclear weapons.

Hefty Inventory Rise

Oil has tumbled from a record high of $100.09 two weeks ago as a hefty rise in U.S. crude inventories compounded concerns of a slowing U.S. economy.

U.S. crude hit an intraday low of $89.26 on Wednesday, the weakest level in nearly a month, after bearish U.S. inventory data.

U.S. crude stocks swelled by a larger-than-expected 4.3 million barrels last week, the first build in nine weeks, the Energy Information Administration datashowed on Wednesday.

OPEC President Chakib Khelil said there was no reason why the group should raise output at its next meeting on Feb. 1 if oil inventories recovered in thesecond quarter.

He predicted prices will trade between $80 and $90 in the first quarter, but forecasts for the rest of the year were difficult due to the possible impact ofthe credit crunch arising from the crisis over U.S. subprime mortgages.